Delivery Fee Not a Gratuity Under NYS Law, According to Second Circuit

In a case likely to have ripple effects across the industry, the Second Circuit of the United States Court of Appeals has ruled that a mandatory “delivery fee” was not a gratuity under New York State Law. This ruling may significantly impact delivery services throughout the state, who in some cases have been significantly underpaying delivery people on the basis of a “delivery fee” they received. Companies employing delivery people will need to reexamine their pay structure and compensate employees for lost wages.

The lawsuit, Belizaire v. Ahold U.S.A., Inc., concerns drivers for a grocery delivery service, who picked up groceries from warehouses or other storage and delivered them to customers who paid for the service. As part of payment, the delivery service charged its customers a “delivery fee,” which was a charge on top of the bill that was retained by the company. The delivery service attempted to argue that this delivery fee constituted a gratuity under NYLL § 196-d, which would allow them to pay their drivers below the state-mandated minimum wage.

The court disagreed, noting that the delivery company had a separate section on its payment site titled “Service Fees and Tipping,” which stated that tips were optional. The delivery fee cannot constitute a gratuity because it was: a) mandatory and b) kept by the employer and not the driver. As a result, the company will now need to pay its employees the state minimum wage, or at least clarify the rules on tipping for their drivers.

The business law attorneys at Blodnick, Fazio & Clark are skilled and knowledgeable in the area of business law and commercial transactions.  With offices conveniently located in Garden City, Nassau County, and Babylon, Suffolk County, the firm provides high-quality legal care at reasonable prices. If you require legal assistance concerning business startups, formation, corporate acquisitions and mergers, corporate restructuring, or another business matter, call (516) 280-7105 or fill out our contact form for a free consultation.

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